Petition for Writ of Certiorari — Sarkes Tarzian, Inc. v. Audio Devices, Inc. (No. 736)

Supreme Court brief1960

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Supreme Court of the United States

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YPTITION FOR A WRIT OF CERTIORARL TO THE

“ATPED STATES COURT OF APPEAIS FOR THI

NINTH CIRCUL! :

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INDEX

: 3

Page

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a connie {

_—Opinions Below «2... 6 2. 5 re kaka sees cg cet. os

ES cis ink neeaknkoesees enn ans edeepaes teen 1 a

Questions Presented ........ AS AEES DP re 2

I Or I ee a cdpcewcsdcensexabapee &

Basis of Federal Jurisdiction ................0000006- 6

ree saree Seats ieee aed aan eats foe

I, Trial Court ‘s Definition of Trade Secret— Dis-

Ge Souneesaepeee 1 LR Sees eee aa eaeens 8

I]. District Court’s Erroneots Reliance on Prior

— Art—What is Readily Ascertainable? ...... 14

HI. Direct Conflict of Trial Court's Holding with

California Law of Trade Secrets. .... eeeeeees _18

IV. Appropriation of Alleged Trade. “Secrets—Im- ‘

proper Standard Applic by Trial Court..... 21

V. Conclusion ....... ORS OE cnewake eons . 2A

- Appendix A ....... Rene As ip oii aca ead ere ee al ee

i oo IN TEI ce tne) os 7 Sek aaa apna eee

TABLE OF AUTHORITIES

/ Cases

si wh Pay

A. O. Smith Corp. v. Petroleum Iron Works, & Cir.,

1934, 3 ae eee Ve ee ee 105.14. 15,21

Actna Building Maintenance Co. v. West, 1952, 59° Cal. ~

Te ee hs OE a ren eee eee aa ee

Allen Mfg. Yo. v. Loika, 1958, 145 € onn. 909, 144A.

eo eos en oc as OL OK DRE Ea DER eRe is

Board of Trade of (: ity of ( iain v. Chyistie, 1911, |

198°U. S. 236, 20S. SIS Ss pani oa ek ea rca a

‘Bootli v. v. Stutz Meter C ar Co. of Ameri¢a, 7 Cir. 1922,

rt el ee a eet 34

Bourns v. Edeliffe Instruments, D. C. Cal., 1954, dz

nS Osc oc0e ts se ks ay Mite eo me Kea hes ee 13

By-Buk Co. v. Printed Cellophane Tape Co., 1958, 163

Cal Ape. 36 157; 000 P. 92.147 «... 2. ons cu.. 18, 28

Dr. Miles Medical Co. v. John-D. Park & Sons Co..

1911, 220 U. S. 373, 382, 31 S. Ct. 376, 382 .....- 2

DuPont De Nemours Powder Co. v. Masland, 1917, 244

U.S .100, 37 S. Ct. D409 ua bakd paReCaneee des ceuks 4

_Extrin Foods v. Leighton: eed 28] App. Div. 772, 115

N.Y.S. 2d 429 onan Fn eter oe nt er. ae

Fowle v. Park, 1889, 131 U. S. 89, 97, 9 S.Ct. 62 2D

Franke vy. Wiiltschek, 2 Cir., 1953, 209 F. 24°493 . . Al, 25

_ George v. Burdusis, 1949, 21 C. 2d 1353, 130 P. 2d 399. 15

Harris Mfg. Co. v. W ‘illiams, D.. C. Ark., 1957, F.

NG BU 6 oe vebluws vokas pieaeehalsacueunceys 24

Head Ski Co. v. Cia Ski Co., JIne., D. C. Md., 1958, F.

Supp. 919, 923 ..... epee fees

mn -

ts PE RAN EES envi

moat Bee

~ oe Awe

_— ¢ © ~

SEBO CBR REPLI AD Sg

aan 1 Et Se tet sD ETS pe

Prag 4 eet tees oe) BB altars be a

bia Butte a thos

4 Ee OTE Ot Erte RTE oe ea

TABLE, OF AUTHORITIES—Continued

Cases. ae Page

Herold et al v. ‘Herold China & Pottery C o0., 6 Cir.,

1919, 257 F. 911 seeels Dt aa igus dik aS eA we: 12

| Hevden Chemical Corp.'v. Burrell & Neidig, 1949, 2

N.J. Supp. 48, 64 A 2d 465 ..... ci ites teal eaves VW

“L.M. Rabinowitz & Co. v. Dashe ‘r, 1948, 82 N. YS. 2d

REE AEE TEN on tO Ra Mets Pe ae iy .-17, 18

Lee v, Samburr, Cal., 1952, 94 U.S.P.Q. 153 2.0.2... 21

LeVine v. E. A. Johnson & C ‘0. 1951, 107 Cal. aoe. ad

<a e W l vis 3d cea Pee cee 8,13

Minnesota Mining & Mfg. Co. v. Technical Tape Corp...

N. Es OPO, BES UB.PA) OB on. os. eens 18

Monsanto Chemical Co. v. Miller, D. C. Utah, 1958; .

118 U.S.P.Q. 74 ..... , Pe Pee rekeaee eeawa aN wRS 18

0. & W. Thum Co. v. Tloezynski, 1897, 114 Mich. 357 ;

72 N.W. so ETET GREE a AAR AR ee eee ak 12

Schavoir v. American Rebonded Leather Co.. 1926, 104

C onn. mea, 153 Ati. S62., .... 26045: ale We ace a ela a a 18, 24

Selsnen v. Hertz, 40 N.J, Eq. 400, 2 A. 379, 380 , 13

Stone v. Goss, 1903, 65 N.J. Eq. 756, 55 Atl. 736 . = 18

her Dial Corp. v. Rideout, 1954, +29. NJ. Supp, 361, 102

REST Pang! Bs, Sea ie eee 15

Tower cust Company v. Monsanto Chem

ical Works, D.C.N.Y., 1927, 20 F. 2d Bs a yekae 23

Vandenbark v. Owens-Illinois Glass Co., 1940, 311

U.S. 438, - S. Ct. 347 Ba SPAN SE NN FUE Aa ea ee 18

Textbooks

ALL, Restatement, Torts, Section et. OM ok | .8, 10, 23

ili

IN THE

oyna Court of the-United States

OCTOBER TERM, 1960

Pee ea

“e

3 SARKES TARZIAN, INC.. A Corporation _

3 é Petitioner,

z a |

AUDIO.DEVICES, INC., A Corporation ;

4 AUDIO DEVICES, INC., RECTIFIER |

Bi - DIVISION, A Corporation;

AUDIO MANUFACTURING CORPO-

RATION, A Corporation;

“3. DISTRICT PRODUC ‘TS CORPC IRATLON,

{ ‘ A Corporation;

GEORGE J. EANNARINO,

ROBERT G. PARSON,

FRANK GILLESPIE,

_ HUBERT G. DOHMEN,

>) CHARLES (. L. SMITH, |.

4 CLARENCE WILLIAM CHE SN T.

. 4 ERNEST C. FRIES,

eis: FREDERICK G. SCHULLER,

Hi « and DOE I to DOE (C, inclusive,

:: x Respondents.

"3 PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS.

FOR THE NINTH CIRCUIT

. ?

Sarkes Tarzian, Inc.. your Petitioner, prays,that a writ

., of certiorari issue to review the “judgment of the United

- i } 1

States Court of Appeals for the Ninth Circuit, entered.

m the above-entitled case on November 21, 1960.

OPINIONS BELOW

‘The opinion of the’ District Court (R. 78- 149) is reported

at 166 F. Supp. 250." The opinion of the ours a. Appeals

e ¥ ea

(infra, ee A, p. 26) is reported ‘at 283 F. 2s

695. :

JURISDICTION

The judgment of the Court of Appeals Was entered of

’ 4

November'21, 1960 (infra, Appendix B, p. 27). No petitio. ;

for rehearing was filed. The jurisdiction of this Cour |.

is invoked under the provisions of 38 U.S.CLA. Seetio:

1254(1).

QUESTIONS PRESENTED

1. Whether the lower courts ignored California das

Pe eee: ot ahi re

of trade secrets in defining a trade seeret asa e particular og

‘form of construction of a devi iee, a formula, method o

. process that ts of a character which does not occur)

persons inp the trade with knowledge of the state of th

art or which cannot -be~ “EVO olved by those skilled in th

art from the ‘theoretical deseripti ion of the proevess. 07

compilation or @mpendia of information or knowledge”

thus: (a) applying an erroneous test in determininy the’

Petitioner had no protectible tradé seeret in its. éerta

manufacturing process, and (b) arriving at the erroneous

conclusion that the process for, manufacture of <ilico:

rectifiers, developed by Petitione;, was “readily ascertaly

able’’ to the trade.

1: Inasmuch as nine additional copies of the record as printed fc

the use of the Court of Appeals-have been filed pursuant to Rule 21 |4'”

the opinion of the District Court is not appended to.this Petition. Rue

23 (1) (i).

4 2

2; Whether the lower courts ignored California law of

trade secrets in determining that Petitioner’s process for

manufacturing silicon rectifiers was not substantially. ap-

propriated by Respondents.

: we ° ; , . .

STATEMENT OF THE CASE.

This case involves basically the question whether or not

the individual Respondents, former employees of Peti-

tioner, and Respondent Audio Devices, Ine. ( Audio) wrong-

fully appropriated to themselves Petitioner's claimed trade

seerets in a process for manufacture of silic on reetifiers,

The facts, briefly, are as follows:

Petitioner, Sarkes Tarzian, Inc., was, from about 194

to the present date, engaged in the manufacture of selenium

rectifiers. The selenium rectifier represented an advance

over the use of expensive and bulky vacuum, tubes for

the ¢conyersion of alternating oloctri ic current te direct eur-

Teut required by radio and television sets. Such rectifiers -

met the need for low price, miniature rectifiers possessing

the requisite resistanee to heat. * an

In late 1955, Petitioner, with the intention of engaging

in the manufacture of the relatively new sikcon reetifier,

purchased, for $160,000.00, the plant of the Silicon Cor-

poration ot America (Sileoay and rentoved some of its

personnel,’ its equipment and inventory to Bloomington,

Indiana, where it established. its silicon rectifier operation,

(Fd. 10, R. 155.) At the time this silicon program was

initiated by Petitioner, Respondent Eannarino was the

Director ‘and General Manager of .Petitioner’s. seleniuin

‘rectifier division, and Respondents Parsons, Smith, Ches-

nut, Fries and Schuller ,were highly: placed tec bnieal and

administrative employees of the Rectifier Division (R.

226-228). All, except the accountant, Schuller, had signed

agreements to respect plaintiff’s research and manufac.

. turing processes. as trade. secrets (Pltf. Exs. 40-46 incl.).

- Respondent Oleksy .and the other former employees of

Silcoa, similarly signed such agreements to respect as

trade secrets and confidential information all of* the re.

starch and engineering work of Petitioner immediately

upon.decepting employment yith it. None ‘of the individiaal

Respondents, except Oleksy, had prior experience in silicon,

or, more particularly, the manufacture of silicon rectifiers

(R. 190, 688-690, 980-981).

The entire research ayid development program on silicon

rectifiers was designated as seeret and confidential by the

Sarkes Tarzian, Inc. management (K. 210-212, JOT-002,

622-624) - (PItf. Exs. 47, 48, 49, 51. 52, 53, ‘34, 55). No

evidence was introduced by Rscpeudinks coatradictory of

Petitioner's proof that its silicon rectifier program was

designated and consistentl® protected as seeret by thesman-

agement of Sarkes Tarzian, Iné., and the Court made no _

finding ee iin Was not the case.

Not until lite summer of 1956, after intensive research

and.development, did Petitioner feel that it could announce

a successful silicon rectifier available“to the trade (R.

199, 624-5). Such announeement was muide by Responde nt

Eannarino, who claimed an original and sensational ** first”

on behalf of Petitioner (Pltf. Exs. 1-34, inel.) By late

spring of 1957, Manufacturers of radio and television

’ sets -had appréved. and were using Petitioner’s Silicon

rectifier. as original equipment (R. 626). Petitioner was

the’ onlyeompany manufacturing a radio and television

type silicon rectifier which was accepted by and sold to

original equipment manufacturers in any quantity - and,

as of mid-1957, Petitioner was experiencing no substantial

‘competition in this field {R, 241, 976, 609, 649-650)

An SRR BR Bik tenes and

sicnsisca Me oleh a dats Sa ss ined a SE: ook a iba hie RUA eee Lea

Nese tei 1 Wks 4

ae ee Pen vtih Saltavte

though other companies were seeking to deve ‘lop-competi-

tive products.

On %r about July 20, 1957, Respondent Kannarino ap-

progched Audio Devices, Inc? with the proposal that that -

company .back him in his plan to start a competing silicon

rectifier business (Ry 367-377, 560-562, Pitt. Exs. 79, 80).

_ That his plait was to establish sych business with Tarzian

employees was known by Audio (R. 383-384, 563-564).

Respondent Audio had never before been in the rectifier

business or im any business utilizing silicon (R. 459-360,

476-477, 505-506, O46) and it determined to enter the busi- .

ness solely upon Eannarino’s representation and without

independent investigation, research, or gaiployment of addi-

tional personnel (R. 412-513, 517-529, 538-545). With the

full consent and knowledge of Audio Devices, Kantarino

recruited the other individual employe ex from Petitioner's

Rectifier Division. . | .

* On the evening of ‘August 8, 1957,-Audio’s President,

Speed, notified Eannarino that his plan had been approved

by the Board of Directors:and officers of ‘Audio (R. 393,

408-410, 579 382, Pltf. Ex. 79). The following day, all of

the individual’ Respondents, submitted their resignations

to, Petitioner, and immediately. proceeded to,/California to

establish’a rectifier plant. for Audio. In less than a month,

Audio arnounced its entry into the television and radio

silicon rectifier market (R.‘ 230, Plitf. Exs: 72, .73, 116)

and by December, 1957, Respondents, had achieved “sub-

stantial commercial production (R. 863, 893, Plitf. Exs.

a7 i”, 7). a

The District Court held that Patitioner had no protecti-

ble trade seerets‘in its manufacturing process on the ground

that the process did not: measure up to its standard or’

definition. of a trade secret. The trial court also made

}

findings that the Audio process differed in certain respects

from the Tarzian process and that there was, therefore,

no appropriation of any secrets claimed by Petitioner. Ad-

ditional findings of the District Court to the effect that

there was no breach of trust by the individual Respond-

ents and no enticement by Kudio necessarily resulted from

its initial.eonelusion that no. trade secrets existed in the

Petitioner’s process.

Petitioner appealed the holding of the District Court

to the Court of Appeals for the Ninth Cireuit. That Court

affirmed.the District Court without writing a separate opin-

ion ®ut, instead, adopting as its own, the opinion of the

District Court. For this reason, reference will be made

ta the opinion of the Djstrict Court.throughout the argu

ment. 7

Basis of Federal Jurisdiction

Federal jurisdiction in the Court of the first instance

was based upon diversity of citizenship, 28 U.S.C.A. See

tion 1334. Petitioner is a corporation organized under the

laws of the State of Indiana. Respondent Audio Devices.

Inec., is-a corporation organized under the laws of the

State of’ New York, with a place of business in fhe State

of California. Respondents Eannariné, Parspns, Oleksy.

Dohmen, Smith, Chesnut, Fries and Schuller are citizens *

of the State of California: The amount of damages al-

leged in the Complaint exceeded $3,000.00. @

Sian 2B alee

Penh PRI Maw

fe 4 ed btn unde | de kas ©: pore | Bade oo

ov At

ARGUMENT

This is a diversity case and the law of California sheuld '

have been applied as the trial court ostensibly recognized.

In faet, however, the trial court and the Court of Appeals,

in adopting ¢ the trial court's opinion, deliberately ignored

California law in developing a concept of trade seéret _

which excludes from ‘protection. under the law any trygle

secrets in manufacturing ‘processes which consist of un-

orthodox combinations of well-known products and proc-

éss steps. The decision is in direct conflict with the Cali-

fornia’ decisions. The courts below did not,merely err in

‘Interpretation but completely failed to apply the law.

_ For the above reason alone, this Court should grant

this ‘writ for review of the decision. Coypled with the

above, however, is the fact that the question decided in

this suit’ by the courts below assume importance w hich

transcends the interests of’ the litigants involved. The

case involves one of the most pressing and difficult prob-—

"lems facing American industry, namely, the need for assur-

anee that successful atid secret manufacturing processes

will be secure, under the law, against raids by would-be

competitors who seek to enter the same field of endeay-

or; it represents an area of rapidly expanding litigation.

Although this is a diversity case, each ecision in this

growing hody of law assumes national” significance be- D

cause of the tendency in this area to refer to generat au-

thority for delineation of the scope of protectible trade

secrets. This Court has not ruled on a question involving

trade secrets since DuPont De Nemours Powder Co. v.

Masland, 1917, 244 U. S. 100. A definitive holding on the

law of trade seeregs under California law hy this Court

would not only remé@y 7 the failure of the courts below to

cod

‘

ts f

”

8 o

“apply the law but also establish guideposts for the future

in an area where the récurring problem is one of protect-

ing the valuable assets denominated trade secrets."

I. “Trial Court's Definition of Trade Secret—‘‘Discovery.”

The basic element of a trade secret is that it must be

secret. It must be secret in the sense that it does not con-

sist of matters of public or general’ knowledge ; Aetna

Building Maintenance Co. v. West, 1952, 39 Cal.r2d_ 198,

246 P. 2d-11, or of merely mechanieal skills and experience

which employees acqtire over a period of employment.

LeVine v: FE. AL Johnson & Co., 1951, 107 Cal: App. 2d

322, 287 P. 2d 309. There are many facets to this ques-

_ tion of secrecy as indicated in the cited California case:

and in the American Law Institute, Restatement of Torts

in the following language :

‘*An exact definition of a trade secret is not possible.

Some factors to be considered in determining whether

given information is one’s trade secret are: (1) the

.. extent to which the information is known outside of

its business; (2) the extent to which it is known by

employees and others involved ‘in his business: (3)

the extent of measures taken by hiin to guard the

secrecy of the information; (4) ‘the value of the in-

formation to him and to his competitors; (0) the

amount of effort or money expended by him in de-

. veloping: the information; (6) the ease or difficulty

with which the information could be properly acquired

or duplicated by others.’’ A. L. I. » Restatement, Torts,

Section tot, C obmment b, page 6. so: °

—-—— -

-——_

.2. Petitioner recognizes that, in diversity cases, pursuant to the Ere

v. Tompkina doctrine, there is no transcendental body of federal common

law apart from the laws of the particular state involved. Howev...

- Petitioner believes that the significance of the individual precedents it

_this area of the law lends added emphasis to the neéd for this Court to

review the California law of trade sécrets which, for all intents, paral-

lels the general law. .

° e iT

ee 9 ~

Although this does not represent an exhaustive list of

the factors which are generally considered by*the cowsts

in determining whether or not a trade secret exists in

a certain process or product, the reference by the Restate-

ment to the factors to be considered emphasizes that the

judicial role ina t trade secret case is not to determine in-

the abstract whether a,given claimed secret achieves some

esoteric ‘quality which the trial court, in this case, termed

“discovery "*; ; but, instead, a step-by-step consideration

of the factors tending to show whether or not a process,

formula, or product is or is not:the seeret:property of the

"claiming party. .

The trial court’s approach, in this case, Was to meas.

ure the adequacy of the manufacturing process developed ©

by this Petitioner against its own definition of a trade

secret, set forth in its opinion in the following language :

‘“*[A] trade seeret’. . . on the whole . . . must con-

sist of a particular form of construction of a-device,

a.formula,.method or process that is of a character

which doés not occur to persons in the trade with

knowledae-of the state of the art or which cannot be

evolved by those skilled in the art from the theoreti-

cal description of the process, or campilation or com-

pendia of informatton or knowledge.” (R. 87) (Em-

phasis added.) ;

This so-called definition of a trade secret has no foun-

dation under ‘California law, as will be shown in the .

discussion’ of the most reéent pronouncement by the Ap-

pellate Court of California on the subject (infra p. 18),

ard reflects most clearly the basie error, into which the

District Court was drawn in its creation of a concept of

‘*discovery”’ which, goes beyond anything in the general

law on. the ‘subject. a aaeniee

tht wd Wink es ke nell

. |

* . . . . 3 .

The definition, in effect, relegates to non-trade secret - 4

category. any kind of device, formula, method or process 3

which can, in any possible manner, be evolved by. those

’ skilled. in the- art from the compilation of. information

available to the art. It is in direct conflict with the ae-

cepted distinction between a patent and trade secret, which

basic distinction is set forth quite suceinetly in the Re

statement of Torts as follows:

ta eis © ace

‘A trade secret may -be a device or process w which is

patentable; but it need not be that. It: may be a de-

- viee or process. which is clearly anticipated in the prier

art or one which is merely a mechanical improvenen

that a good mechanic can make. Novelty anid inven-

tion are not requisites for a trade secret as they are

_« for-patentability.’’ A. L. L., Restatement, Torts, See-

tion 49%-'*b’’, p. 6.

rutin | DRE ena Ba wud ">

Although Petitioner is not contending that the trial cour

was unaware of the existence in the law of this basic dis

tinction, it is a fact that the trial court introduced con

fusion into the law by announcing a concept which it termed

‘‘diseovery’’ which, for ‘all practical purposes, incorpe-

kates the mechanical improvement test applicable to pat

entsThe trial court's definition of a trade secret led

Se ee Pen ae ee ee

to state dogmatically i in its opinion that: ‘

‘‘[T here is no discov ery Ww hen one skilled in the art :

develops a process. for effecting certain desired. re |

sults.”’ _ AR. 100) : 3

~ 7] 4

In sharp contrast the Court of Appeals for the Sixth Cir 4

cuit in A. O. Smith Corp. v. Petroleum Iron Works, 6 Cit. <3

1934, 73 I. 2d 531, 538 atmguaned | invention and discey- :

ery as follows: e

ee ae

“To entitle one to a patent, there must be invention.

The applieant must have exercised some degree of

ingenuity, digplayed some flash of genius, inspiration,

or imagination not-within the reach of mere artisan-

———ship. That which constitutes invention has, of course,

‘ never been successfully defined. There are tests, how-

ever, which responded to, proclaim its absence; the

most familiar, of course, being that leading to the de-

termination, always difficult to make that the thing

. achieved was the result’ of ordinary mechanical skill.

A process, may,. however, be maintained in secrecy

and be entitled to equitable protection - even though

invention is not present. The cases which deal with the

elements necessarily present in a proprietary process

are careful to define such processes as resulting from

invention, or discorery. Quite clearly discovery is

something less than invéntion. /Invention requires

“genius, imagination, inspiration, or whatever is the |

faculty that gives birth to the inventive concept. Dis-

* . corery may be the result of industry, application, or

_ be perhaps merely fortuitous.”’ (Emphasis added.)

And, in Franke v. Wiltsehek, 2 Cir’, 1953, 209 F. 2d 493, the

Court. of Appeals for the Second Ciretit, in holding that

a trade seeret existed. in a simple process for compressing

a face cloth into a small mass, cautioned against the use

_in the field of trade’ secrets’ of the mechanical skills test.

The court stated (209. F. 2d at 499): I =

- ‘IS]inee the ability of a ‘good mechanic’ is quite an

| impreeige concept, its destructive potentialities in this

area [trade secrets] under the natural tendency of re-

*strictive precedents to accumulate can he forecast.’’

By giving new meaning to the term discovery the trial

court-has introduced this condemned ‘‘imprecise concept’

into the law of trade secrets.

Finding no support in the’ California cases for its unique

use of the term discovery, the trial court attempts to find

ov 12

basis for its-theory in three early decisidns by this Court;

but those cases do net support his view. Thus, Fowle rv.

Park, 1889, 131 U. S. 89, 97, 9 S. Ct. 658, 662, used the

word ‘‘discovered’’ in a non-definitive manner to describe

how the claimed trade secret was developed. Board of

Trade of City of Chicago v. Christie, 1911, 198 U.S. 256,

25S. Ct. 740, involved the Board of Trade’s property iD

‘confidential ung continuous: quotation of prices on sales

of grain and provisions for future delivery, and Petitioner

is ata loss to determine what element of discovery, as the

trial court defines that term, was there involved. The case

of Dr. Miles Medical.Co: v. John D. Park & Sons Co., 1911,

220 U. S. 373, 382, 31 S. Ct. 376, 382, simply held that a

trade secret as a.‘‘discovery’’ could-be used by ‘* Anyone

who fairf¥, by analysis and experiment, discovers

it."", This Court gave no special significance to the term,

in that case and, certainly, this "Petitioner:

‘*discovery,

would not take issue with the stateme nt that anyone may

use a secret process if he fairly discovers it, by his own ,

- efforts.

re)

The A. O. Smith case, supra, andthe cases cited’ therein.

similarly found no special magic in the t term discover.

A. O. Smith, supra, indicates that discovery may result

from ‘‘industry, application, or be merely fortuitous.”

Herold et al v. Herold China & Pottery Co., 6 Cir., 1919

257 °F. 911 defined discovery as involving more than the

mere experience or mechanical skill of an employee en-

gaged in the trade of pottery manufacture, which is mere-

ly another way of saying that the skills an employee aec—~

quires in his'trade cannot be hue Fexccsine of a claimed trade

secret. Oc & W. Thum Co. v. Tloczynski, 1897, 114 Mich. .

357, 72 N.W. 140 did not holies discovery, but found a trade

“seeret to exist in a certain process after giving practical

consideration, among other things, to the fact that em-

, "13

ployees engaged by the plaintiff there had no previous

special skills in the process involved. In Solomon v. Hertz,

40 N.J. Eq. 400, 2 A. 379, 380, the court, in refusing to

grant a motion to dissolve an injunction, held merely: that:

‘One who invents or discovers and keeps a secret

‘ process ef manufacture, whether patentable or not,

- has a property therein which this court’ will protect

‘against onegwho in Violation of contract and breach

of confidence, undértakes to apply it to his own use

or disclose it te a third person.’

° te .

This is precisely Petitioners contention.

None of the California cases cited by the trial court give

any inkling that the TT skills test is applicable to

the trade secret cases. I. eVine v. BE. A. Johnson & Co., 1951,

107 Cal. App. 2d 322; 237 .P. 2d 309-stands only for the pro-:

position that an employee who had engaged in more than

forty years’ daily experience in the field of construction

and operation of S0- called cooling towers -could not be en-

joined from using skills and experience so acquired after

‘taking new employ, afid’ is inapplicable on its facts to dhis

case, detna Building Maintenance Co. v. West, 1952, 39

Cal. 2d 198, 246 P. 2d 11 held only that, pitas prior desig-

nation by an employer of processes: for furnishing jani-

lorial services as secret an& absent evidence that. such

processes in any manner differed from the general accepted

trade practices, there. could be no claim of.a violation ,of

‘‘trade secret’? by a former employee. Bourns v. Edcliffe

Instruments, D. C. Cal., 1954, 125 F. Sapp. 503 held, with-

out discussing the detailed nature of the claimed secret;

that there could he no trade secrets in the names of cus-

tomers and sources! of supply if — information . was

obvious to the general trade. George rv. Burdusis, 1949,

21 Cal. 2d 153, 130 P. 2d 399, is to the same effect. Rely-

ing in this manner on cases involving customer lists, ei-

14 ‘

ther tndesignated as secrets or readily available to the

trade, and upon cases, inyolving merely employee skills,

the trial court rewrote the California law of trade secrets

‘as discussed infra at page 18. Its approach led inexera- . °'

bly to‘an erroneous reliance on ‘¢prior art’? ih the patent

‘nsage of that term.

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II. District Court’ s Erroneous Reliance on Prior Art—

What is Readily Ascertainable?

In the A. 0. Smith case, supra, the finding by a master

that certain trade secrets were in the public domain **he-

cause [they were] -within the realm of mechanical skill"

_was held to be in error. As the court in that case correctly

pointed out (73 F. 2d at 538):

“Tif the rule-applied by the master be the trye

one, it would be difficult to conceive of any process

whose secrecy is entitled to be protected which is not

at the same time patentable except in so far as the!

patent iaw limits - subject matter of patents.” oe >

If the definition of trade secret ‘sealed by the District

_ Court is allowed to stand, there can be ro trade secret, |

except in matters which are patentable or which ayproach\ ;

the novelty one would normally associate with invention.

That this would be the practical, if not the intended re,

sult of the District Court’s statement of the law is cleft -

from its approach to the instant ease. The court virtually

ignored the facts which stand of record that Audio De- |

vices, Inc. had no previous experience’ in the manufacture

of rectifiers of any sort, that mee Audio nor any of

the individual defendants exceptA@leksy had any previon~

experience with silicon, that, a (rough Audio spent a con- |

siderable sum in initiating its rectifier division in Califor- °

nia, the expenditures were for plant and equipment ani

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not research and development; and that in late’ 1957, the

- critical date, Petitioner alone had a’ successful process for .

the manufacture of silicon rectifiers of the radio and tele-

vision type. Overlooking these undisputed facts, the Court

held that, on the basis of a prodigious amount of so-called

prior art references introduced into evidence, Respondents

“ had established that the process here involved was readily

ascertainable ta the trade. In so holding, the trial edurt .

. could not have been aware that Respondent Audio expended

vastly more effort, time and money in the research inci-

dent to this trial than incident to its initiation of a silicon

rectifier business. «a

Reliance on a mass of evidence of so-called prior art in

trade secret cases has repeatedly been: rejected by the

eourts. In Sun Dial Corp. vr: Rideout, 1954, 29 NJ. Supp.

- 361, 102 A. 2d 90, 93-94, the court, in referring to such

evidence, stated: .

‘The fact that individual process steps are known to

industry and the further fact that every product used

by plaintiff . . . can be boughp in the open market

‘loes not weaken the conclusion-we reach. Williams

was able to devise a combination of products |

and methods which resultgd in_preeminently finé dial

and panel work—much like a fine chef who achieves

an outstanding culinary product by a sequence of

biending ingredients and by timing achieved through

a long period of trial and error.”’ |

In refusing to give weight to evidence which indicated

. Seneral trade knowledge of individual process steps, it is

interesting to note that the court in the Sun Dial case

also alluded to the concept of discovery as enunciated in

wl. O. Smith, supra. However, the court correctly deter-

tuined that the use of a well-known, proprietary paint

product in.an unorthodox manner, along with a combina-

—

tion of a number of well-known process steps, still

amounted-to trade’ secret. In contrast, the trial court. be-

low and the Court of Appeals, by adopting the trial court's

opinion, held that this Petitioner had no trade secret be

cause, in their estimate:

“Whether a method is or is not unorthodox does not

determine its validity as a secret. It is whether it is

unique and unknown in the trade that is important,

or whether fhete is discovery in selecting between

alternative steps.’’ (R. 112)

The Court apparently intended, by this statement, to hold

that unorthodox combinations of individually well-known

process steps could not be secret. By so holding, it de-

termined that unless the processes invol¥ed were propri-

etary and unique in the inventive sense, there can be no

trade secret.’ This is just not-the law: *

3. The trial court, in so concluding, chose to find something damaging

in what it termed an admission by Petitioner’s: expert which developed

in the following colloquy, (R. 930): .

“The Court: These various processes which, you have described

for us are recognized methods in thé art of achieving the things

that we have in mind? For instance, the pulling of crystals

is a recognized method of transmuting the multipoly crystal-.

line to a _uni-crystal by the method of what has becn called

etching. Etching is a method of cleaning metals and there are

various methods of achieving that end either by polishing or

running them through various compounds, the qualities of

which are known to chemists and persons in the field.

“Every step in this process is a recognized process in the par-

ticular industry, is it not?

“The Witness: That is a very general question. I believe the

answer to that would be, yes, there are very few processes that

are used which are not used ih some other way. Certainly we

etch lamp bulbs—lamp bulbs, for example, are etched.

“Crystals of synthetic quartz are nowadays.

“The Court: And what you have outlined as you say is the

uniqueness of the process as practiced, was that they used

what you call unorthodox methods of arriving at certain results.

Isn’t that true?

“The Witness: Well, this is certainly true—sovme of the proc-

esses that are used—in fact, sevéral of the processes which are

used there are in direct conflict with the overwhelming prepon-

derance of processes that are outlined in the literature.

“The Court: As.applied to this particular art? -

“The Witness: Yes, that is right.”

The above colloquy was quoted by the trial court in its opinion at

R. 142. ;

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Evidence. of prior art was similarly given little weight

in the ease of Heyden Chemical Corp. v. Burrell & Neidtg,

1949, 2 N.J. Supp. 48, 64 A. 2d 465, which involved alleged

trade-seerets in processes for the manufacture of formal-

dehyde and pentaerythritol. The New Jersey court in

that ease held that. evidence of the prior art consisting of

_ some 800: to 1000 references dealing with the produetion

of formaldehyde and 500 to 600 dealing with the produc. —

tion of pentaerythritol did not support the defendant's

contention that the claimed processes were part* of ‘the

general knowledge of the trade: The court observed that

the processes of manufacture of both chemicals consisted

of a number of integrated steps known to the trade; that

the basie ingredients were well-known to the chemical pro-

fession, and that there existed numerous articles, patents

and treatises relating to the manufacture of the chemicals.

The court pointed out, however, that (64 A. 2d at 467).:

{Only a person who knew the Heyden proeess

[claimed secret} could make the selection of literature

references which were offered in evidence.’ |

It is equally clear in the present casé that only -by be-

ing :ware of the Tarzian process for manufacture of recti-

fiers could defendants. select the literature references to

be put in evidence in support of.their contention that the

Tarzian process was well-known to the trade. For this

reason, courts have repeatedly held irrelevant literature

showing only general non-definitive steps or parts of a

process or product or showing only isolated fragments of

a process or product.t See L. M) Rabinowitz v.' Dasher,

—_.

4. Counsel for the Respondent indicated the approach followed by

Respondent in the presentation of a conglomerate of prior art references

in the following statement (R. 1346): .

; ‘[W]e have never represented that this patent. teaches every

Step in the art. We have used it to illustrate that it teaches one

or two of the steps, but not every.step.” ~

By knowledge of the Tarzian process the Respondents could assuredly

locate patent references to the individual steps. - ie

‘.-% caer

1948, 82 N.Y.S. 2d 431, 438, Schattoir v. American Rr-

bonded Leather. Co., 1926, 104 Conn. 042, 133 Atl. ds2;

Extrin ‘Foods. v. Leighton, 1952, 281 App. Div. 772, 115

_N.Y.S. 2d 429; Monsanto. Chemical Co. v. Miller, me

Utah, 1958, 118 U.S.P.Q. 74; Head Ski Co. v. Kam Ski

Co., Inc., D.C. Md., 1958,°158. F. Supp. 919, 923; Allen

_ Mfg. Co. v., Loika, 1958, 145 Conn. 509, 144 A. 2d 306; —

Stone v. Goss, 1903, 635 N.J. Eq. 756, 55 Atl: 736; Minne.

sota Mining & Mfg. Co. v. Technical Tape Corp., NX. Y..

1959, 123 U.S.P.Q. 96. ay

III. Direct Conflict of Trial Court's Holding With Cali-

fornia Law of Trade Secrets.

On the basis of the trial court's definition of ** discovery”

which incorporated the mechanical skills test of the patent

law and which led the trial court to false reliance on prior

art references, the courts’ below completely ignored the

applicable California law. The decision by the California

Appellate Court in By-Buk Co. v. Printed Cellophane -

Tape Co., 1958, 163°Cal. App. 2d 157, 329 P. 2d 147 (rehear-

ing denied September 12, 1958; petition for hearing denied

Qetober 22, 1958) is the most recent and illuminating discus-

sion of that law. The case was decided subsequent to the de-

cision of the trial court, but prior to the affirmance of the

lower court’s holding by the Court of Appeals. It repre-

sents a definitive restatement of the accepted law of trade F

secrets of the State of California which the courts below

chose to ignore; but which, having been decided while

. this case was sub judice, was binding en the lower.courts.

See Vandenbark v. Owens-Illinois Glass Co., 1940, 311 U.S.

538, 51S. Ct. 347.

In the By-Buk case, the plaintiff was a manufacturer of

masking dises and die cut masks of pressure sensitive tape

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for use in shielding industrial apparatus from abrasives .

or paint. The machines and processes to manufacture such —

products were in use by an Eastern competitor, but plain-

to affect this production. It, therefore, undertook tnde-

pendent eXperiments to develop its own machines and

processes. Plaintiff was successful in developing. machin-

ery to secure the desired results, but, subsequently, one

of its employees terminated employment and went to work

for a competitor, who immediately entered business in com-

petition with plaintiff using similar machinery and, meth-

ods. The California Appellate Court held that the plaintiff

had a protectible trade secret and that an injunction against

appropriation by defendant was proper.

' The California Appellate Court held that although it

had been stipulated at trial that all component parts of

the machines developed by plaintiff were standard parts —

procurable on the open market, defendant's contention

that the machines made of such standard parts could not

be unique or unusual was properly rejected. The court

pointed out that in making this assertion, the defendants

_’ Miscone:.ved the elements of a trade secret. The court

noted:

‘It is not neeessary in order that a process of: manu-

facture be a trade secret that it be patentable or be

something that could not be discovered by others by

their own labor and ingenuity. Restatement, - Torts,.

Volume 4, Section 757, Comment B, Page 5, defined

the term as follows:‘A trade secret may consist of any

formula, patent, device or compilation of informa-

tion which is nse_ in one’s business, and which gives:

him an opportunity to obtain an advantage over com-

petitors who do not know or use it. * * * Generally.

‘torelates to the production of goods. as. for example,

a machine or formpla for the prodnetion of an article.”

’ «The character of the secret if it is important to thé

business is not material but it must, as the term im-

plies, be kept secret by the one who claitms it. Riess

v. Sanford, supra, 48 Cal. App. 2d 244, 246, 117 P. 2d

694, Restatement, Torts, Volume 4, Section 79%, Com-

ment B, pp. 5, 6.”’

After thus stating the definition of a trade secret, the

California Appellate Court held that plaintiff's machines

were trade seerets. It was apparént to that court that

plaintiff's technique’ of combining, through a systeri of”

trial and error, various parts, which were apparently known

to the trade, in order. to produce the results he desired.

bore fruition in a protectible trade seeret -embodied in

the machines which cree -had developed. The court

went on to say:

a is’ undoubtedly true that if Tape Company [de-

fendant | had used ‘the same thought, labor and ingenu-

ity which were used by plaintiff it might have been

able to secure the same results that plaintiff did. But.

- this faet does not destroy plaintiff’s right not to have

its processes wrongfully disclosed to others and used

to its detriment.”’

The ruling of the Court in the By-Buk ease could never

obtain under the decision of the trial court in this ease.

According to the trial court, the mere fact that an eastern

competitor had achieved the desired result (a combination

of known, standard products) from its study of the kuow!-

edge in the art, and that there was, indeed; enough in-

formation in the art to guide thé plaintiff as a_ skilled

mechanic in arriving at the desired cae ae have de-

feated any elaim of trade secrecy.:The plaintiff ‘in the’

By-Buk ease did not ‘*discover*’* anything in the: manner

suggested by the trial court but, by a patient system of

seco totais Vat

* would consider t

“ee 21 |

trial and error, he combined various parts from known

processes and devices to achieve a_ protectible trade

secret. In & sense this is discovery and ‘this concept of

“diseovery"', as applied by the California court in the

By-Buk case, parallels: the true concept of discovery as

set forth.in the A. O. Smith case, supra.” As stated in the

A. 0. Smith case,(73 F. 2d at 538):

‘The mere fact that the.means by which a discovery

is made afe obvious, that expeaimentation which leads

from known factors to an ascertainable but presently

the value of the diseoveyy to one who makes it; or

advantage the competitor whe by unfair means, or

‘sired Knowledge without himself paying the price in

_ labor, monex, or machines expended by the discov-

erer.’? (Kmphasis added.)

‘

"Thus, the courts below have not only’ ignored complete-.

ly the governing California law, they have also created

_ a precedent which will engender great-doubt aid confusion

~ :

as to the nature of a protectible trade seéret-under the

laws ef California: and generally. . es |

IV. Appropriation of Alleged Trade Secrets—Improper

Standard Applied by Trial Court.

_ 5. A previous decision by a California trial iit Judge eats

= Lee Vv. Samburn, 1952, 94 U.S.P.Q. 153 paralleled the By-Buk dis:

cussion of the law af trade secrets in California. Judge Praeger noted

at there were few California cases on trade secrets, other than s»-

called customer

e list cases. He relied heavily on the general law. The

trial court, when referred to this decision, stated that althoug', he

he case he was not bound by the holding. (R. 1270.)

unknown result may be simple, we think cannot destroy

us the beneficiary of a broken faith, obtains the de-_

The courts below, in addition, have provided a defense. -

fo wrongful appropriation which has no possible basis -’

. . ° % a s . -

“under California law. Respondent. Audio Devices, Inc. had

-- Gk ; ¢

never previously engaged in the manufacture: of. any recti-

‘fier device and had never worked ‘with silicon. Yet, within

one month after. establishing its plant in California,’

was producing rectifiers in competition with Petitioner.

There was no evidence and no finding that Audi® Devices

independently developed its own process; the only finding

in this regard is that Audio Devices spent great sums of

‘money to devélop their new division. Initial investmynt by

Audio was $800,000 for % plant to house its new division

(RB. 102). An additional $200,000 was expended for equip.

ment; there i is tio indication that any money was expended *

for researeh and, indeed, there was no time allowed }

which to conduct: research prior to Audio’s entry ae

competition with Petitioner.’ Minor variations were intro-

duced in the Audie process, but these minor-changes would

not support the District Court’s conclusion that there was

0 appropriation of the Tarzian process.

The trial court’s approach to this question Andicat

that it had already determined that there was no trade

seeret in the“Parzian Processe »beeaust of a lack of **di-

voyery’’. [ts review of the so-called differences betw:

the Audic and Tarzian processes Was thus immaterial wa

unnecessary to its final conelusion; and was accomplished:

without regard to applicable jaw. Indeed, the trial court

states in its opinion, which was adopted by the Court of

Appeals that: - ;

{The differences between the two processes. under

discussion here appear as the conscious attempt by

former employees, nof to infringe upon whatever «l--

- ment of selectivity between alternative ‘procedure:

there may have been in the Tarzian process.’* (A!

R. 128) ie ia

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Tf, in fact, the Tarzian process were the secret proéess and

23 ee

property of Petitioner, no amount of consctous effort on

the part of Audio and the individual Respondents to mod-

ity théir process in order to avoid infringement would

avail them under the law. In the case of By-Buk Co. v.

Printed Cellophane Tape Co., supra, similar -evidence of

changes, modifications and even improvements in the .ap-

propriated process’ was held to have been correctly’ ex-

cluded by the trial court. The California Appellate Court

held-flatly that: = eon

“| Djefendants cannot escape responsibility by show-

ing that they have improved upon or modiited plain-

_ tiff’s process. Even though they may have inodified

or improved .the’ plaintiff's process, they are still

wrongfully using its propetty.”? (329 P. 2d at 15+.)

In <0 holding, the Appellate Court of California relied

-on the Restatement of Torts, Section of, Comment Cr?

as authority. [t is provided in that comment to the Re-

statement that: Vv

“To subject a person: to Rability, under -the rules

stated in this section, for the use of another's trade

veret, there is no requirement that he use it in exact-

7 dy the form in which he received it. He may be lable

even if he uses it with modifications or improvements

upon it effected by his own efforts. ”’

In the case of Lower Manufacturing‘ Company v. Monsan-

fo Chemical Works, B.C. N.Y., 1927, 20 F. 2d 386, Judge

Agustus Hand observed : |

; *T cannot think that the fiduciary obligation of ong

bound not to disclose a secret proeess or not to use

r such a process that has been improperly disclosed; is

not violated, where the process employed is used to

produce an identical result in ways directly suggested

‘by the disclosure, though slightly different from? it

in detail.’’

Courts in a number of other jurisdictions have similarly

held that variations or modifications in a process or prod-

uct which was admittedly appropriated. by the defendant

.were no defense to the charge of wrongful appropriation.

96 F. 2d 962; Harris Mfg. Co. v. Williams, D. C. Ark...

1957, 157 F. Supp. 779; Head’ Ski Co. v. Kam Ski Co., Inc..

D. C. Md., 1958, 158 F. Supp. 919; Scharoir v. American

Rebonded’d Leather Co.. 1926, 104 Conn. 842; 183 Atl. 582,

383. ° - : er

In this case, Respondents made no effort to show inde-

pendent development of their process, and, as the trial

court indicated in its opinion, any differences in the proc

esses were occasioned by the conscious efforts of -Respond-

‘- ents tovavoid obvious infringement of the Tarzian process. ”

If the holding. of the trial court, as affirmed by the Court

of Appeals for the Ninth Circuit is-allowed to stand, pro-

viding as it does a complete defense to wrongfulappropria-

tion of a secret process through minor modification or -

- change in the process, no trade secrets are safe from the

encroachments of industrial raiders. :

V. Conclusion.

The trial court, and the Court of Appeals in turn, have,

pee to California law, determined that a trade secret

‘cannot exist in a unique combination of well-known proc:

ess steps. These courts have injected into the law of trade

secrets the test more appropriate to determination of pat-

entability, ie.,-the test of whether the device or process

involves. more fhan the assumed abjlity of a ‘mechanic

skilled in the art; and, under the terms of the District

Court’s opinion, as a practical result, discovery has become

the equivalent of-invention. ,

”~

‘

Circuit in Franke v. Wiltschek, supra, at 498-499:

ing in this branch of the law [trade secrets] the as-

3 sumed aility of a ‘good mechanie,” a concept often

eae useful in highlighting the lack of novelty of. an al-

that ubiquitous genius has been” questioned and his

destructive effect on the law of inventfons somewhat

e* -

in resort to the same device to justify the marauding

instinets of trust violators, since thereby the earefully

built law of trade secrets may be destroyed as a prac-

tieal matter and such Duginess assets be left open to

hijacking from all-sides, In practice the complicated

.and novel device is likely to be patented, leaving pro-

branch of the law. And since the ability of a ‘good

niechanic! is quite ah linprecise concept, its destrue-

tive potentialities in this area under the natural tend-

ency of restrictive precedents to accumulate ‘can be

forecast." ‘\

lhe destructive potentialities thus forecast hate become

actuality uuder the holding in this case. These destructive

otentialities confront all industrialists, large and sanall,

if, in facet, a clear blueprint for industrial theft.

It is respectfully requested that the Petition for Writ -of

Certiorari. be granted. ~

C. B: Durtros,

Cart D. Overman,

CHRISPOPHER Kina: ES,

Attorneys for Pe ice r.

+»

NR i ni is oh Bes Phe Aaa RS Hi Relat BES RENN IR Bl I i FSO is a i As Sin Gath BMI Fae Gy

In-the language of the Court of Appeals for the Second -

° . ; . %

.**There may, it seems, be considerable danger in stress-.

leged patent. Even as to patents the capability of

deplored. Be that as it may, there is positive danger’

tection of simpler devices wrongly exploited to this.

Who count trade secrets among their assets. This decision

/ APPENDIX A

UNITED STATES COURT OF APPEALS—

‘ FOR THE NINTH Ciii'UIT

SARKES TARZIAN, INC.,

a Corporation,

Appellant, ;

vO No. 16,431

; a 2s Nov. 21, 1960

AUDIO DEVICES, INC, * | ‘ “if (

a Corporation, et al.,

A ppellees.

AppreaL FROM THE Unitep Stares Distr’ Court

SouTHEEN District oF CariFoRNIA *

CenTRAL Division

Before: STEPHENS, BARNES and JERTBERG, Cir.

cuit Judges Per Curiam

_ The judgment is affirmed on the basis of the opinion filed

‘in the case by the leatned District Judge, and reported at

166 F. Supp. 250:

(Endorsed) Per Curiam Opinion Filed Nov. 21, 1960.

“Frank H. Schmid, Clerk.

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

SARKES TARZIAN, INC., ee

a Corporation, | 4 f —

. Appellant,

a . ve is No. 16431

AUDIO DEVICES, INC.,

a Corporation, et al.,. .

| Appellees.

JUDGMENT

Appeal fronr the United States District Court for the

Southern District of California, Central Division.

This cause came on to.be heard on the Transcript of the

Record from the United States District Court for the

Southern District of California, Central Division, and was

duly submitted.

¢ y ; ;

(mn consideration whereof, it is now here ordered and

adjudged by this Court, that the judgment of the said

District Court in this cause be, and hereby is affirmed,

with costs in favor of the Appellees and against the Ap-

pellant.

_ It is further ordered and adjudged by this’ Court that

the Appellees recover against the Appellant for their costs

herein expended and have execution therefor.

(ENDORSED)

Judgment : Filed and entered

November 21, 1960 ¢

FRANK H. SCHMID, Clerk

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.